Public sector banks will be empowered and protected from witch-hunting so that they can close commercially prudent settlements of stressed assets and bad loans, according to Union Finance Minister Arun Jaitley.
“Banks will be empowered, including through legal provisions; there will be protection for big, bona fide decisions by the top managements to ensure speedy resolution of stressed assets,” Mr. Jaitley told the media following discussions with the heads of the state-owned banks. The proposals will be fine-tuned after taking into consideration suggestions from the Indian Banks’ Association (IBA).
Hastening recovery An IBA official, who attended the performance review meeting, later said the new provisions being mooted are aimed at encouraging bankers to enter into ‘reasonable and fair settlements’ with regard to those stressed accounts where full recovery is considered difficult, “without fears of fishing expeditions of investigative agencies later on.”
This, he said, is expected to quicken the pace of recovery and cleaning up of banks’ balance sheets.
The Finance Minister also said cumulatively the state-owned banks had reported losses of Rs.18,000 crore in 2015-16. Although the reported operating profits were “substantial” at Rs.1.40 lakh crore, losses were due to higher provisioning for bad loans made in the previous two quarters, he said.
Mr. Jaitley said the Reserve Bank of India was expected to report the cumulative level of non- performing assets (NPA) for public sector banks. It was expected to be higher than the previous year’s level. The feedback from banks was that the steel and infrastructure sectors were slowly recovering, leading to an improvement in the NPA levels arising out of outstanding loans to companies in these industries.
Responding to a question on merger proposals among the banks, Mr. Jaitley said the government will soon approve State Bank of India’s (SBI) proposal to consolidate within itself its five associate banks—State Bank of Travancore, State Bank of Mysore, State Bank of Bikaner and Jaipur, State Bank of Patiala and State Bank of Hyderabad—and the Bharatiya Mahila Bank. The boards of the associate banks passed resolutions last month to pave the way for their merger with the SBI.
“The proposal is pending with the government...the government will respond shortly…government policy by and large supports consolidation...I had indicated it in the Budget itself,” he said.
Mr. Jaitley declined to confirm if any other consolidation proposals were in the pipeline. “We are looking at SBI for the moment,” he said.
Recapitalisation Reiterating that the government had earmarked Rs.25,000 crore for recapitalisation of these banks in the Budget, he said that would commit to more funds if needed.
